Best Practices in Managing Inventory

It's easy to complicate inventory management, so we've shared tips on how you can keep it simple but useful.
inventory management best practices

You expend a lot of resources to build your business and make sure it's in good shape. Costly major inconveniences caused by equipment malfunctions and a limited supply of materials are the last things you need. The good thing is that it's totally avoidable. Enter inventory management.

 

What is inventory management?

You'll get different answers, depending on whom you ask:

  • Business.GOV.AU defines it as the "part of your supply chain management, which can help you make sure you have the right products in the right quantity for sale, at the right time." Their definition excludes capital assets, such as equipment, vehicles and staff.
  • Investopedia defines it as the "process of ordering, storing, using, and selling a company's inventory. This includes the management of raw materials, components, and finished products, as well as the warehousing and processing of such items."
  • IBM says it's the "tracking of inventory from manufacturers to warehouses and from these facilities to point of sale". This is essentially the high-level, end-to-end definition.

Here we want to keep it relevant, simple and relatable for our customers, who are mostly: 

  • Purchasing officers/managers from manufacturing companies in major industries (eg fast-moving consumer goods, food and beverage, and pharmaceuticals)
  • Facilities and maintenance managers
  • Small business owners
  • Tradies
  • DIY handymen and casual hobbyists

In this context, inventory management means making sure they have sufficient materials and equipment to keep their business operational.

 

The difference between the inventory of materials and inventory of equipment

When talking about inventory, people usually think of trading stock, which is essentially any component a business "acquires, produces or manufactures, for the purpose of manufacturing, selling or exchanging", according to Business.GOV.AU

Often, they are referring to materials, which are components used in the manufacturing of the product. 

Common examples include:

  • Bearings, belts and pulleys installed as parts of a power transmission system
  • Bolts and nuts used to affix parts and surfaces
  • Greases, lubricants and oils applied to avoid friction between moving parts in a system
  • Paints applied as a protective layer onto surfaces

Then, there’s equipment, which are apparatus, machinery and tools to facilitate the manufacturing of the product.  

Common examples include:

  • Power tools to make various manual processes (eg cutting, drilling, grinding etc) way easier for the human hand
  • Measuring tools to determine the physical dimensions of objects
  • Polishing compounds to apply a finish to surfaces

 

Why proper inventory management matters

  • production haltYou don't want production halts due to material shortages: No business wants their production to stop just because of limited supply. Those of you in manufacturing know very well the impact of a stop in production. Even more so if you are producing essential products (food and beverage, pharmaceuticals and the usual consumables you see on supermarket shelves) and commodities that usually move fast with steady, high demand.

  • You don't want unplanned downtime due to equipment failure: In business, time is money. Unforeseen disruptions take a financial toll. Some estimates place the costs of unplanned downtime as high as USD50 billion annually in the US. Almost half of those incidents are caused by equipment breakdown. Nobody likes that, especially if they heavily rely on linear processing and machinery to produce output. Again, if you’re in manufacturing you can relate here the most, however you don't have to be in manufacturing to realise that it's hard -- or even impossible -- to produce goods/outputs/results when you don't have the tools of the trade.

  • business partnersYour partners and customers need your output delivered on time: Delays usually have a compounding negative effect on businesses that go deeper than the bottom line. Ongoing delays can impact workforce morale, business relationships and even brand reputation. That's a downward spiral we want to avoid!

 

Most common challenges in maintaining good inventory

Inconsistent tracking systems: Some businesses still implement very little inventory tracking, while some overdo it with multiple software platforms. This usually happens when manufacturers, distributors, partners and vendors use different supply chain management platforms. Unfortunately, that often results in different data sets with incompatible taxonomy that end up under-utilised in data silos. Depending on the size of your organisation, you may consider centralising your processes, at least internally, by investing in a highly flexible enterprise resource planning (ERP) platform. From there, you can standardise some internal processes and taxonomy (eg SKUs) across the board. 

outdated dataInaccurate, outdated data: While not absolutely unavoidable, inaccuracies in data may be kept to a minimum by continually ensuring that the attributes of materials and equipment are updated in line with supplier advice. As demand changes, so do the availability and prices of raw materials, commodities and services, so don’t rely on your suppliers to keep you informed. Someone in the organisation needs to continually request updates.

Manual documentation: Some will argue the merits of managing inventory the "old school” spreadsheet way. It may work for you if you can afford the time (and thus, productivity loss and manhours) to do it repeatedly and scalably, however there's always the challenge of manually updating your data every single time there is movement in your stock. In this age of specialised software-as-a-service, spreadsheets are considered "legacy and traditional" and very limited in capability. And, we're not even talking about Industry 4.0 Internet of Things (IoT) enabled inventory.

Damaged assets: This is where you start asking questions such as:

  • Was this damage caused by the manufacturer?

  • Why didn't we see the defects earlier?

  • Is it replaceable?

  • Is it repairable? 

  • How much will it cost to repair? 

  • How soon can we get it to work?

  • How will this affect the pipeline?

misplaced assetMisplaced assets: Issues begin to get real once you're on the floor looking for the actual equipment that, on paper (or software), was "supposed to be somewhere here". Not every business can afford to tag NFC and RFID trackers to every piece of equipment in order to know its whereabouts at every moment. Now there are even more questions: 

  • Was it actually received in the warehouse? 

  • How long has it been missing? 

  • Did we store it in the wrong location? 

  • Do we even have an asset checkout process? 

  • Did someone check it out? Or ... 

Theft: This is unfortunately not uncommon.

  • Did someone take it without permission?
  • Who's supposed to be looking after it?

Under-utilised or inefficient warehousing: Just stock up a lot of everything and we're good, right? If you thought over-stocking is always a good thing, think again. Here are some factors to consider:

  • Some materials require special storage within a certain level of humidity and temperature.
  • Materials become obsolete.
  • Materials deteriorate.
  • Materials expire.

 

How to keep proper inventory

  • databaseUse a comprehensive, consolidated database to track your assets: This does not have to be a complicated software platform that no one in your business knows how to operate. If you already have one or several, make sure you (or your staff) know how to properly use them. Most importantly, make sure it can generate sensible data that everyone in your business can actually use.

  • Delegate the task to a specific person: Where appropriate, assign or hire an inventory specialist to really own the end-to-end process. The ideal person is someone who understands supply chain management and can maintain productive relationships within your team and with your partners and suppliers.

  • inventory checklistKnow what you have right now, what you'll need soon and who will use it: Once the platform and people are in place, it's time to start tracking your assets. (Some even go as micro as accounting for even the smallest of fasteners! Your call.) Important data to record could include:

    • Unique identifiers [eg serial numbers, stock keeping units (SKU), universal product codes (UPC) etc]

    • Make and model

    • Item description

    • Supplier and/or manufacturer

    • Purchase cost

    • Purchase date

    • Lifecycle / Shelf life

    • Condition of the item as of [date]

    • Quantities on hand

    • Special storage requirements (including hazardous material info for proper handling)

    • Warranty information

    • Maintenance requirements and schedule*

    • Checkout details (who's using it where and when)*

    • Safety data sheets

    • Technical data sheets

*Applies specifically to equipment inventory

There is certainly no ‘one size fits all’ inventory management approach. Just as every business is unique, so too will their inventory management systems. Nevertheless, there are principles of good practice which every business should consider as they build and continue to improve their system.